Hello! I had posed this question earlier on your IG page, but you said better to pose it here. Basically - I know you always talk about index funds and I would like to follow your advice. However, I’m currently putting away 9% (and my org is contributing 6%) to my 403b at T. Rowe Price, where it is currently 100% invested in a “retirement 2050 fund” based on my age. How does this differ from an index fund? Would you recommend I invest in something different? I really am new to this and don’t know much. I want to make the most of the little I have. Thank you for your help!
Hi Esther! The fund you are currently investing in is known as a “Targeted Index Fund” or “Target Date Index Fund”. So in fact you are already investing into an index fund! Check out this post from Jeremy to learn more!
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Wonderful! Thank you! I was hoping that was the case!
Hey @Estherh1!
I think I might have some bad news for you. I believe that fund you’re investing in is a target date fund, not a target date INDEX fund. Read the warning near the bottom of the article on target date index funds that @dgurgan referenced .
From what you posted, I think you may be in the TRRMX fund, which has an expense ratio of 0.71%. That’s pretty high for my taste. The target date index funds I prefer, are closer to 0.1%, or about 7x lower.
That’s pretty much the difference… an “actively managed” target date fund collects high fees to pay managers to pick and choose stocks for you. Those fees can erode a significant portion of your nest egg over the years.
THAT SAID, it’s not BAD. It just may not be the best (or it may be depending on what your employer offers). Here’s a post on how to pick your 401k investments.
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I went with BKTSX (iShares Total U.S. Stock Market Index K) for my 403b. It’s the closest to VTSAX available. Extremely low fee and solid rate of return over the years. I plan on maxing it out every year.
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